Mexico Peso Swings Rise as Investors Weigh Fed Stimulus, Reforms

Mexico peso volatility rose to a 17-month high as investors weighed concern the U.S. will pare monetary stimulus against predictions that lawmakers will pass legislation to bolster the Latin American country’s growth.

Three-month historical volatility, a measure of the magnitude of the peso’s fluctuations during the period, rose to 13.2 percent at 4 p.m. in Mexico City, the highest since February 2012, according to data compiled by Bloomberg. The peso was little changed at 12.9008 per dollar after dropping as much as 0.7 percent against the greenback.

The peso, which earlier fell on concern the U.S. may taper stimulus, pared losses after minutes from the Federal Reserve’s June meeting showed that many policy makers want to see more signs that employment is picking up before slowing the pace of $85 billion in monthly bond purchases. The currency also rebounded as Fed Chairman Ben S. Bernanke said separately that the “overall thrust” of U.S. policy is highly accommodative.

“Today we’re more dominated by the Fed” than Mexico’s reform agenda, Mario Copca, a currency and fixed-income strategist at Metanalisis SA, said in a telephone interview from Mexico City.

Mexican benchmark bonds, which had been rallying this week on speculation that the country’s rival political parties would work together to pass legal changes to open the state-controlled energy industry to more private investment this year, fell today. Yields on benchmark peso bonds maturing in 2024 rose six basis points, or 0.06 percentage point, to 5.89 percent, according to data compiled by Bloomberg.

Bernanke said June 19 that policy makers may start winding down asset purchases known as quantitative easing, or QE, in 2013 and end the program by the middle of 2014. The peso has dropped 5.9 percent since the end of April as speculation mounted that the Fed would curtail stimulus.

The peso will rally 4 percent by the end of the year to 12.4 per dollar, according to the median forecast of analysts surveyed by Bloomberg.

Peso Outlook

The peso ‘has a lot of upside,’’ Douglas Smith, the director of emerging-marked fixed-income research at TIAA-CREF Investment Management, said today at the Bloomberg Mexico Conference in New York.

Mexico’s currency is attractive for medium- and long-term investors, Gerardo Rodriguez, the managing director at BlackRock Financial Management Inc., said at the conference.

President Enrique Pena Nieto who took office in December, is seeking congressional backing to open Mexico’s state-controlled oil industry to more private investment and boost tax collection, changes that he says may lift growth to 6 percent. The International Monetary Fund yesterday reduced its Mexico growth forecast for 2013 by 0.5 percentage point to 2.9 percent. The country’s economy grew 3.9 percent last year.

Pena Nieto has said he’s confident lawmakers participating in the so-called Pact for Mexico alliance will back reforms, including an energy industry overhaul. The opposition National Action Party, or PAN, said this week it has almost completed its own proposal.

“All the incentives are aligned for all parties to really go into this Pact for Mexico and approve reforms,” Gabriel Casillas, chief Mexico economist and head of research at Grupo Financiero Banorte SAB, said at the conference in New York.

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